By TOM FOWLER Two major energy companies are planning to build new pipelines that will move as much as 850,000 barrels of crude oil a day from Canada to refineries along the Gulf Coast by mid-2014, in the latest effort to cope with a surge of oil production in North America.

The separate projects, planned by Houston-based Enterprise Products Partners LP and Enbridge Inc. of Calgary, will compete with TransCanada Corp.'s proposed Keystone XL pipeline, a massive project to move crude from the oil sands of Alberta to U.S. refineries. The Keystone project was delayed late last year after pressure from environmental groups and has become a hot-button topic in the U.S. presidential campaign, with critics of the Obama administration contending that the delay will contribute to high gasoline prices in the future.

Enbridge and Enterprise already operate the Seaway Pipeline, which used to move oil north—from Freeport, Texas, near Houston, to the massive oil storage hub in Cushing, Okla. Last year the companies said they would reverse the flow of that pipeline because a recent surge in Canadian and U.S. oil production has created an overabundance at that location. The reversal will let Seaway move as much as 150,000 barrels a day south to refiners by June 1 and 400,000 barrels a day by early next year by adding new pumping stations.

The companies said Monday they now have enough long-term commitments from new customers to also build a new 30-inch pipeline along the same right-of-way, which will add up to 450,000 barrels per day in capacity by the middle of 2014. Two smaller pipeline projects will connect the Seaway pipeline to Enterprise's storage hub along the Houston Ship Channel and to refineries near Port Arthur, Texas.

Enbridge, which is one of the largest shippers of Canadian crude oil to the U.S. with a capacity of 2.5 million barrels a day, is also going to start work on a pipeline to move oil from its existing Flanagan, Ill., pipeline hub to Cushing. The pipeline, which will run alongside an existing conduit, will have an initial capacity of 585,000 barrels per day.

The Enterprise and Enbridge projects don't face the same hurdles as Keystone XL, like a U.S. State Department review, because the cross-border portions of their pipelines are already built, experts say. But the new pipelines will require approval from the U.S. Federal Energy Regulatory Commission, which oversees how much pipeline owners can charge for moving products, and the U.S. Army Corps of Engineers, which must review the engineering and environmental plans.

While environmental groups have focused most of their efforts on blocking Keystone, they still have concerns about the Flanagan and Seaway projects, said Anthony Swift, a lawyer for the Natural Resources Defense Council.

Crude from oil sands may be more corrosive than other oils and thus make pipelines more likely to leak, Mr. Swift said.

I suppose I could post this on the thread for Newt's presidential campaign , , , but what would be the point?

Cheaper American EnergyAlternatives Already Hereby Newt Gingrich

Dear Marc, As President Obama is spending billions of taxpayer dollars to prop up his preferred sources of energy—solar, wind, and algae—American truckers are offering a lesson in transitioning to new sources of fuel in the real world.Without even being ordered to do so by President Obama, trucking companies are starting to convert parts of their long-haul fleets to natural gas, an American energy source of which we have more than a hundred years' domestic supply. And Clean Energy Fuels, in cooperation with Chesapeake Energy, is investing tens of millions to build more than 150 liquefied natural gas (LNG) stations to service them.America's truckers and energy producers are doing all of this without half-trillion-dollar loan guarantees from the federal government. They're doing it without the skyrocketing taxpayer giveaways the president has offered his favorite "greenback energy" pet projects.They're doing it for one simple reason: it makes sense for their bottom lines.In my newsletter several weeks ago, I wrote of the incredible increase in America's estimated supply of natural gas in the last few years, and the resulting collapse in its price. In 2008, the average price was $7.97 per thousand cubic feet. The spot price last Friday was roughly $2.07. That's about a 75 percent drop in price in just four years, attributable in large part to improvements in technology which have made more gas recoverable than ever before. With natural gas less expensive relative to oil than it has ever been, many public transportation and urban truck fleets have already converted to Compressed Natural Gas (CNG). And with diesel prices nearing record highs, the rationale for long-haul trucking companies to convert part of their fleets to LNG is more compelling every day.Fuel is one of the highest costs for any transportation business today, and the rising cost of oil is taking a toll on trucking companies that are heavily dependent on diesel. Since natural gas is now a dramatically cheaper alternative, companies that convert part of their fleets are discovering they have a growing price advantage over competitors that refuse to make the leap. Jeff Dillon, the founder of Dillon Transport, which owns hundreds of trucks and is investing in LNG, told Bloomberg last month that "nobody can beat us on rates right now if we have the [natural] gas component in place."Many trucking companies will have a hard time resisting competitive pressures to offer LNG-based long haul services when the difference in cost is so immense . Already, UPS is using LNG-fueled trucks on one of its long-haul routes. Heckmann Water Resources is deploying a fleet of 200 LNG trucks for its water tank trucks. And Walmart is testing LNG vehicles for hauling in California.

Energy suppliers and truck manufacturers are racing to meet what they anticipate will be a fast-growing demand for LNG stations and equipment. Chesapeake Energy has invested more than $150 million in Clean Energy Fuels, which is partnering with Pilot to provide LNG refueling at Flying J truck stops across the country, helping to build out America's natural gas highway. Clean Energy plans to have over 70 stations in 33 states by the end of this year, and at least 150 stations in 2013—eventually one every 200-300 miles along the country's major roadways. Long-haul LNG trucks have a range of about 600-800 miles before needing to refuel, so this network will enable LNG trucks to complete cross-country trips.Despite the long-term incentives for trucking companies to invest in LNG vehicles, the economic downturn has been a drag on the transition. For the 97 percent of trucking companies that are small businesses with 20 or fewer trucks, the current premium for LNG vehicles over diesel can be hard to swallow, even though the economics make sense over the course of the truck's lifetime. With badly-needed tax reform and 100 percent expensing for American businesses (which would allow companies to write-off new equipment in one year) we can help ease the burden of investing in all new equipment, including natural gas trucks. This simple change would allow businesses to recoup the extra cost of new natural gas trucks faster—with no federal subsidy. And by reducing demand for oil, a switch to natural gas for freight trucks would put downward pressure on gasoline prices.There's only one real model for achieving American energy independence, and it's not the president's top-down, bureaucratic greenback energy approach. When we do reach that goal, it will be because of investments like those the trucking and natural gas industries are already making right under the president's nose.

Today, Senators David Vitter, Jeff Sessions and John Cornyn called Obama on his lies in the form of a letter to Secretary of the Interior Ken Salazar. Their indictment is devastating:

Dear Secretary Salazar:

We are concerned with the veracity of statements you made in recent weeks regarding domestic energy production on our federal resources. These statements are similar to claims made by other members of the Administration including the President himself. As you may know, the federal government owns almost 2.5 billion acres of mineral estate, an area larger than the entire land mass of the United States. As director of the Bureau of Land Management, Robert Abbey, testified this month, oil production on our federal property is actually down 14% and offshore production from federal areas is down 17% from only a year ago. Just last week, the Congressional Research Service issued a report revealing that 96 percent of the increase in domestic oil production since 2007 has occurred on non-federal lands. It further revealed that in 2011 production on federal public lands has actually declined by an average of 275,000 barrels per day. Oil production on private lands is indeed up year-over-year, but the Administration does not manage private lands and should not attempt to take credit for private market decisions.

Oil production on federal lands increased in 2009 and 2010 as a result of leasing and permitting decisions made before your Administration took office. However, the falloff in leasing and permitting actions under the Obama Administration is apparent, and even your own Energy Information Administration anticipates continued falloff in production in 2012 and beyond.

We also ask that you rectify the President’s claim that we only have 2% of the world’s oil. Nothing could be further from the truth, as even the Washington Post reported last week.[1] He bases this statement on U.S. “proved reserves” but the U.S. Energy Information Administration has stated that proved reserves is “not an appropriate measure for judging total resource availability in the long-term.” As Secretary of Interior, surely you are aware of the vast oil resources we possess both onshore and offshore that are currently off limits due to this Administration’s combined actions. America is endowed with resources that exceed a TRILLION barrels of oil.[2]

According to the Institute for Energy Research, “USGS estimates that unconventional U.S. oil shale resources hold 2.6 trillion barrels of oil, with about 1 trillion barrels that are considered recoverable under current economic and technological conditions. These 1 trillion barrels are nearly four times the amount of oil resources as Saudi Arabia’s proven oil reserves. We provide the following examples of what we would view as further inaccurate statements by the Administration regarding the state of federal energy production and resources:

Fact: You made the two most pivotal decisions to shrink domestic offshore energy production over the last three years that could have been made. First, you eliminated the 2010-2015 OCS lease plan that would have opened areas of the Atlantic, four geologic basins off S. California, one geologic basin off N. California, while expanding areas in Alaska, including the Cook Inlet. Instead, you have proposed a new 5-year plan that excludes all of the areas of the OCS where the moratorium was lifted in 2008, and reduces the number of planned lease sales by roughly half. Essentially, the moratorium lifted by President Bush and a Democrat Congress in 2008 will continue in effect for a decade under your plan.

Fact: These numbers distort the facts. The Outer Continental Shelf (OCS) is 1.76 billion acres. Of that 1.76 billion, less than 35 million acres are actually leased (less than 2%). Your proposed 5-year lease plan does not open a single new lease planning area, and therefore we have no way of knowing what estimates of “technologically recoverable” oil in all of the areas that remain off limits are because you have chosen to keep them off limits. Most of our OCS has not been explored for decades, and providing access to only a fraction gives us no clue what is truly there.

A more accurate statement is that your 5 year plan opens 75% of the oil and gas in areas where we think it exists because we have drilled there. We don’t know about the vast majority of the OCS that isn’t leased, much of which has not been assessed with the benefit of new information for a quarter century.

3. Claim: “Since we put in place new safety standards in the wake of the Gulf oil spill, we have approved more than 400 drilling permits. In fact, we are now permitting at levels seen before the spill, all while meeting these important new standards.” Secretary Ken Salazar, 3/12/2012

Fact: There exists no evidence that permitting for production has indeed reached pre-moratorium levels. In fact, the families impacted in the Gulf are still reeling from the impacts of the slowed pace of permitting. Exploration and permitting have yet to recover to pre-2010 levels on account of the moratorium and ensuing permitorium on shallow and deepwater permits. According to one recent study, “Prior to the deepwater drilling moratorium, the U.S. oil and natural gas offshore industry was forecasted to grow significantly due to identified prospects, mostly in the deep water. With the establishment of the moratorium and the subsequent slowdown in the issuance of drilling permits at all water depths, an estimated $18.3 billion of previously planned capital and operational expenditures did not occur in 2010 and 2011.”[3] The study further concludes that the permitting challenges have already cost 90,000 jobs. It is of importance to note that the moratorium was never endorsed by the National Academy of Engineers, as you had attempted to represent. An Inspector General investigation was required to uncover the political influence and misrepresentation by the White House and your office in an important scientific document.

4. Claim: “The fact of the matter is that we are producing more from public lands, both oil and gas, both onshore as well as offshore, than at any time in recent memory. And when you look back at the years of 2009, 2010, and 2011, we’ve continued to make millions and millions of acres of the public estate available both on the land, as well as on the sea.” Secretary Ken Salazar, 3/12/2012

Fact: As we pointed out earlier in this letter, there is significant lag time to production after the process of leasing. Presumably this is the reason for your repeated observation that “there is no immediate fix” for higher gas prices. After a company has leased property they then have to explore, develop and produce, with each stage requiring new permits and compliance with federal processes. The production gains we saw in 2009 and 2010 were the result of leasing and permitting that occurred in the Clinton and Bush Administrations, and was just beginning to come online. However, by 2011 we began to experience the impacts from the moratorium and falloff of leasing and permitting under your leadership. Total oil production on federal lands is down 14% over the previous year, offshore is even worse at down 17%, and federal lands saw the fewest number of new onshore leases since 1984. You also failed to hold a single offshore lease sale in fiscal year 2011.

As a further example, in 2008 the industry spent $2.6 billion to obtain 487 leases in the Chukchi Sea for production offshore Alaska. So far, not a single well has been drilled on any of these leases. There have also been numerous new regulatory roadblocks and permit withdrawals from federal onshore production since you took over leadership of the Agency. Examples of onshore leasing challenges include your withdrawn and slowed leasing in the West, including Montana and the Dakotas.

In July of 2008, then as a United States Senator, you had an opportunity to support increasing domestic energy production, if the price of gas increased beyond a certain threshold. You repeatedly objected to increasing domestic energy production, even if the price of gas were to have reached $10 per gallon.

Although gas prices are not $10 per gallon, they are increasingly impacting our economy and fellow Americans, particularly low-income and middle-class families. We are hopeful that similarly to Secretary Chu, you have reevaluated your position on gas prices and will redirect your efforts to alter what the agency has done to limit future production, and will instead work to develop our truly vast domestic oil resources, resources that well exceed “2%” of the world’s oil.

Jeff Sessions David Vitter John Cornyn-------Of all the reasons why it is imperative to bring the Obama administration to an end in January, its pervasive dishonesty is near the top of the list. - JohnHinderacker, Powerlineblog

By DANIEL GILBERT And RUSSELL GOLD The Environmental Protection Agency has dropped its claim that an energy company contaminated drinking water in Texas, the third time in recent months that the agency has backtracked on high-profile local allegations linking natural-gas drilling and water pollution.On Friday, the agency told a federal judge it withdrew an administrative order that alleged Range Resources Corp. had polluted water wells in a rural Texas county west of Fort Worth. Under an agreement filed in U.S. court in Dallas, the EPA will also drop the lawsuit it filed in January 2011 against Range, and Range will end its appeal of the administrative order.A pond near water wells that the EPA had said were polluted by natural-gas drilling in Parker County, Texas. The agency dropped its claim Friday. In addition to dropping the case in Texas, the EPA has agreed to substantial retesting of water in Wyoming after its methods were questioned. And in Pennsylvania, it has angered state officials by conducting its own analysis of well water—only to confirm the state's finding that water once tainted by gas was safe. Taken together, some experts say, these misfires could hurt the agency's credibility at a time when federal and state regulators seek ways to ensure that natural-gas drilling is done safely. A growing number of industry, academic and environmental experts say that while drilling can cause water contamination, that can be avoided by proper use of cement seals and other safety measures.By year's end, the EPA is set to release initial results of a study on the impact on water of hydrofracturing, or fracking, which involves using a high-pressure mixture of water, sand and chemicals to break apart energy-rich rocks. State officials contend they are in a better position to evaluate drilling procedures and safety in their areas, but they have been accused of laxity by environmentalists and local governments officials.

EPA officials declined to comment on their broader efforts to regulate gas drilling. But in a statement, the agency said that settling with Range "allows EPA to shift the agency's focus in this particular case away from litigation and toward a joint effort on the science and safety of energy extraction." The agency said it and Range would continue to monitor water wells and share data.CONT>

THE reversal of fortune in America’s energy supplies in recent years holds the promise of abundant and cheaper fuel, and it could have profound effects on what people drive, domestic manufacturing and America’s foreign policy. Cheaper fuel produced domestically could reduce the cost of shipping and manufacturing, trim heating and cooling bills, improve the auto market and provide tens of thousands of new jobs.

It might also pose new environmental challenges, both predictable and unforeseen, by damping enthusiasm for clean forms of energy and derailing efforts to wean the nation from its wasteful energy habits. But for Americans battered by rising gasoline prices, frustrated by the dependence on foreign oil, skeptical of the benefits or practicality of renewable fuels and afraid of nuclear power, the appeal of plentiful domestic oil and gas could far outweigh the costs.

Just a few years ago, the dominant theme in discussions about energy was of declining production and the fear of running out of oil. Even today, political tensions in the Middle East, particularly in the Persian Gulf, have fanned fears of supply disruptions that are keeping prices high. But a new boom in energy production in recent years has upended these expectations in record time. High energy prices led to a wave of successful oil and gas exploration in North America, including in fields that were deemed uneconomical only a few years ago. Using techniques like horizontal drilling and hydraulic fracturing, oil companies are tapping into deeply buried reserves in shale rocks and in the ocean’s depths.

The surge in energy prices, along with a recession and new government rules that tightened fuel-economy standards, led to a sharp cutback in gasoline consumption. This decline in demand in the last five years reversed decades of almost uninterrupted growth that made the United States the world’s top energy consumer, accounting for one in every four barrels of oil burned around the globe.

The North American energy revival is primarily the result of so-called unconventional sources of energy — like shale oil and shale gas across the United States, oil sands in Canada and deepwater production in the Gulf of Mexico. In the last five years, the United States and Canada combined have become the fastest-growing sources of new oil supplies around the world, overtaking producers like Russia and Saudi Arabia.

“The transformation unfolding in North America represents a potentially decisive shift in the history of energy,” Rex W. Tillerson, the chairman and chief executive of Exxon Mobil, who is not usually given to hyperbole, said in a speech in Houston last month. Ed Morse, head of global commodity research at Citigroup and a longtime energy analyst, says North America has the potential to become a “new Middle East.”

“The reduced vulnerability of North America — and the world market — to oil price spikes also has deep consequences geopolitically, including the reduced strategic importance to the U.S. of changes in oil- and natural gas-producing countries worldwide,” Mr. Morse said in a recent 92-page report called Energy 2020. ”Pressures towards isolationism in the U.S. will likely grow, with consequences for global stability that can only just begin to become understood.”

“The only thing that could stop this is politics — environmentalists getting the upper hand over supply in the U.S., for instance,” the report said.

The new supplies ensure that the United States will remain well entrenched in oil, but the continuing reliance on fossil fuels also carries significant environmental concerns — whether from the risk of offshore drilling, or the hazards, many still unknown, of hydraulic fracturing. It also means that greenhouse gas emissions will most likely increase, at least until carbon emissions are capped or new technology to store carbon dioxide underground is developed.

The glut of natural gas supplies cuts two ways on emissions. It has effectively put an end in the United States to any new investment in coal plants, which produce much more emissions. But it also makes the economics of alternative, noncarbon energy sources like wind power or solar power difficult to justify without public support and subsidies. Regardless of the environmental impact, there is no guarantee that new supplies will inevitably lead to lower gasoline prices, as proponents of unfettered domestic drilling argue. Oil is a global commodity with a price set on the global market. With rising demand around the world, particularly in emerging economies, and instability in many oil-producing countries, many analysts predict global oil prices will remain volatile — and high — for many years to come.

And with gasoline prices above $4 a gallon, the nation’s energy resources remain a polarizing topic, pitting Republicans against Democrats, environmentalists against oil companies, and conservationists against advocates of unfettered drilling.

Page 2 of 4) “It is remarkable how quickly perceptions have changed,” says Guy Caruso, the administrator of the United States Energy Information Administration from 2002 to 2008, who is now at the Center for Strategic and International Studies. “We may be in the early stage of this transformation, and clearly things could still go wrong.” Energy production is an inherently risky business, but recent history suggests that when resources are available they end up being developed.

After the explosion of BP’s deepwater well two years ago in the Gulf of Mexico, leading to the biggest oil spill in American history, the Obama administration imposed a moratorium on offshore drilling. But it took only about a year for exploration and production to resume offshore.

Cheaper energy costs — particularly for natural gas — would benefit a variety of domestic industries, like chemicals, pharmaceuticals and fertilizers. The rise in natural gas production has already led many utility companies to shift their electrical production away from coal; it also calls into question talk of a nuclear revival in the United States. Economists say that ample gas supplies might also provide the basis for a resurgence of American manufacturing, which has been battered by high energy costs for much of the last decade.

Natural gas prices have fluctuated wildly in recent years, rising to $14 for a thousand cubic feet from $2 within a few years. The current glut, however, has driven prices back down again, to near $2 for a thousand cubic feet. With America becoming one of the top natural gas producers, some domestic companies might rethink moving parts of their business to countries with cheaper energy costs. (At current consumption rates, American gas reserves would last at least 75 years, an estimate some experts say is conservative.)

Lower natural gas costs would also have cascading benefits to other commercial sectors, like retailing. Shipping costs may be lower, particularly if transportation companies shift their fleets to natural gas-powered or electric vehicles. FedEx, for instance, has already been adding clean energy trucks to its fleet, including hybrid and all-electric delivery trucks in cities like Chicago. Citigroup estimates that as many as 3.6 million new jobs might be created by 2020 thanks to the energy boom. The current trade deficit might fall by 60 percent by the end of the decade from today’s level, according to the bank’s estimates, and the dollar could appreciate by as much as 5.4 percent as imports shrink. “In a world of high energy prices, the potential economic activity generated by this wave of new hydrocarbon production is extraordinary and should strongly boost national output, increase incomes, create wealth, stimulate consumption and create jobs,” according to Citigroup. Given how swiftly expectations have shifted to describe America’s energy prospects, however, some caution may be warranted. Opposition from environmental groups and concerns about climate change — which is caused by increased carbon emissions from fossil fuels — could lead to tighter regulation of petroleum products or derail infrastructure projects like pipelines. That is what has happened to the extension of the Keystone XL Pipeline, which its supporters say is needed to increase the import of oil from Canada’s oil sands into the United States. That project has faced stiff opposition from environmental groups because oil sands are more energy-intensive and emit more carbon dioxide into the atmosphere than traditional oil sources. The increased reliance on these unconventional oil sources, including oil sands and shale oil, has led some energy experts to talk about a “re-carbonization” of energy supplies if that reliance distracts from the need to develop renewable fuels. “As we run out of conventional fossil fuels, we face some fundamental choices,” said Dan Lashof, the climate program director at the Natural Resources Defense Council. “Are we going to switch to cleaner energy sources, or are we going to switch to dirtier energy sources? That’s why the Keystone pipeline was so hard fought. It’s because we face a real fork in the road. And depending which way we go, solving our environmental problems might become impossible.” Page 3 of 4) Environmental groups are also concerned about the effects on underground aquifers of hydraulic fracturing — in which water under high pressure is used to break apart shale rocks to release natural gas. While natural gas emits less carbon dioxide than coal when burned for electrical production, which has led producers to try to brand it as a “clean” energy source, it remains a fossil fuel that emits carbon into the atmosphere when burned. Because it is suddenly plentiful, and relatively cheap, doubts have been raised about future investments in renewable power sources that had been favored to replace coal. “Cheap natural gas has delivered significant near-term environmental benefits, but it clouds the outlook for renewable energy,” said Trevor Houser, a partner at the Rhodium Group, an economic research firm. “Without an extension of current tax credits or adoption of new pro-renewables policy, wind power and other renewable energy sources will have a tough time competing with natural gas in the years ahead.” Geologists have long known that shale basins across the country, like the Bakken field in North Dakota, Eagle Ford and Barnett in Texas, and the Marcellus in the Northeast, held tremendous oil and gas reserves. But energy companies had no economic way to collect them until new technology recently changed that. The results have been impressive. Production from the Bakken region alone has gone from negligible quantities to 500,000 barrels of oil a day in just a few years. Production at Eagle Ford produced just 787 barrels in 2004. Last year, its production reached 30.5 million barrels, according to state regulators, and it is still growing. Natural gas production there went from nothing to 243 billion cubic feet in just three years. The National Petroleum Council, an industry-led group that provides advice to the secretary of energy, recently outlined its view of how the nation’s larger-than-expected resource might be developed. In a major study released last year, the group forecast that North American oil production might exceed 20 million barrels a day by 2035 under a “high potential” situation of unfettered access. However, under a “limited” situation where production was constrained for a variety of environmental or political reasons, domestic supplies might fall to less than 10 million barrels a day. Some experts are more bullish. Mr. Morse of Citigroup forecast that North American oil production could reach an astounding 27 million barrels a day by 2020, almost twice the rate of production of 15 million barrels a day at the end of 2011. Production from the United States could grow to 15.6 million barrels a day by 2020, up from nine million barrels a day in 2011. If that trend continues, the growth in oil and natural gas supplies in the next decades could turn the United States into a top energy exporter, rivaling some members of the Organization of the Petroleum Exporting Countries. Natural gas could be sold to Mexico and Canada (because exploiting oil sands is so energy-intensive, Canada might have to import natural gas to produce its oil). Refined petroleum products, and even crude oil, could find customers in Europe and Latin America. Coal could be exported to China. With less gasoline demand, the nation’s surplus refining capacity means the United States is already exporting petroleum products — like gasoline and diesel. The United States is now the top exporter of refined products, just ahead of Russia. The United States has been a net oil importer since the middle of the last century. America’s dependence on imports grew as the country’s consumption rose and domestic production dropped, and reached a peak in 2005. That year, domestic consumption of oil was about 21 million barrels of oil a day — a quarter of global oil demand. More than two-thirds of that was imported. But this was most likely the high-water mark for oil imports, at least in the foreseeable future. The nation’s oil consumption has since fallen by about three million barrels a day as consumers cut back on their gasoline use. Analysts say this trend is actually deep-seated, and is likely to continue. Americans are buying fewer cars, and they are driving shorter distances. The average distance traveled peaked at 12,500 miles a year in 2003, according to Citigroup, and could fall to 11,600 miles a year by 2020. Page 4 of 4) At the same time, federal fuel-efficiency standards are being tightened. The Obama administration and automakers last year agreed to new fuel-efficiency targets, aiming to raise the Corporate Average Fuel Efficiency, or CAFE, standard to 54.5 miles per gallon by 2025, with the goal of saving 12 billion barrels of oil over the life of the program. Political attitudes, once hard and fast, are undergoing a transformation. “For 20 years, Democrats opposed opening public lands to oil production and Republicans opposed increases in fuel economy standards, but the run-up in oil prices shattered all that,” said Paul W. Bledsoe, a senior adviser at the Bipartisan Policy Center, a research group in Washington. “The shift in politics was amazingly swift. As was the change in psychology, where the United States was viewed as an energy-depleted nation, to the view now of an energy-rich superpower.” The rise in fuel efficiency in conventional vehicles, along with the growing popularity of hybrids, could also mean all-electric cars will struggle to gain much market share, according to a report released last year by the Boston Consulting Group. In fact, the report found that by 2020, electric cars in the United States would account for a lower share of the market than in either China or the European Union, where they are likely to benefit from government support. Assessing falling American dependence on foreign oil, analysts with the financial firm Raymond James said imports fell from 65 percent of demand, or 13.5 million barrels a day, their peak in 2005, to 9.8 million barrels a day in 2011, or 52 percent of demand. They predicted that imports would keep falling, reaching 4.5 million barrels a day — or just a quarter of domestic oil demand — by 2015. By 2020, they forecast, the United States would not need to import foreign oil anymore. “The resulting savings from the standpoint of the trade deficit are highly meaningful,” the analysts said, “especially when the benefits of cheaper energy for domestic manufacturing are taken into account. Maybe the real question is, When will Washington apply to join OPEC?” While the question is provocative, the change in outlook for domestic supplies, along with the changed role of the United States in global energy markets, carries important economic and geopolitical lessons. Nationalism over natural resources in countries like Venezuela, Russia and much of the Middle East has increasingly forced Western oil companies to look for oil and gas closer to home. And exports are already shrinking for many OPEC producers as their own domestic demand soars — a result of energy subsidies that keep prices artificially low. It is still too early to get a clear sense of the political implications of this reduced reliance on oil from places like the Middle East. Four of the top five sources of foreign oil to the United States are already outside the Middle East — Canada, Nigeria, Venezuela and Mexico. The fifth is Saudi Arabia. James Brick, an energy analyst with Wood Mackenzie, a research firm, said in a recent report that by 2030 the United States could end up exporting 500 million tons of coal a year, 3.2 billion cubic feet a day of natural gas and 2.5 million barrels a day of oil products. “The United States will be playing a very different role on the energy markets, a much more international role and a much more complicated and sophisticated one,” said Mr. Brick. “As with any forecast there are uncertainties but no matter how you cut it, the United States has the resources in the ground.”

All he is missing is to say - all of the above -should compete evenly in a free market.-----------------Solar? Wind? Oil and gas? All of the above in Colorado

By Gov. John Hickenlooper 04/24/2012

The gas station near our neighborhood has raised the price of a gallon of gas by nearly 20 cents in just one week. It's the same everywhere. Gas is climbing to nearly $4 per gallon — essentially a job-killing tax on consumers just as we are beginning to see the economy improve.

Like Yogi Berra said, "It's déj… vu all over again." We have seen this play before.

In 1973, responding to our first energy crisis, Gov. John Love left Colorado to become the nation's first "energy czar." His charge in Washington, D.C, was to develop a plan that would help America become energy independent.

Forty years and seven presidents later, our country is finally beginning to achieve domestic energy independence. But as Thomas Friedman said, "The biggest energy crisis we have in our country today is the energy to be serious — the energy to do big things, in a sustained, focused and intelligent way."

It is why the Obama administration is calling for an "all of the above" energy policy that promotes development of a diverse mix of energy resources, including solar, wind, biofuels, natural gas, oil and coal.

An "all of the above" energy strategy makes sense for the country. It also makes sense for Colorado, where we are already leading the way.

Colorado is recognized as a leader in wind, solar and geothermal energy, and for what former Gov. Bill Ritter called the "new energy economy." Colorado is also home to abundant supplies of natural gas and low-sulfur coal.

Colorado was the first state to pass a voter-approved renewable energy standard. We have an ambitious but achievable goal of using 30 percent renewable energy by 2020, giving Colorado one of the nation's strongest renewable energy standards. In 2010, a bipartisan group of legislators approved the Clean Air Clean Jobs Act, legislation that will improve Colorado's air quality by using clean-burning natural gas to generate electricity.

Thanks to the collaborative efforts of industry and the environmental community, Colorado now has the country's strongest public disclosure rule on the process of fracking.

We have partnered with Oklahoma to lead an effort aimed at creating a market for compressed natural gas vehicles, which run cleaner, cheaper and keep jobs and dollars in the U.S. rather than exporting them to foreign dictatorships. Eleven other states have joined in the effort to leverage the purchasing power of state fleets.

Thanks to the bipartisan leadership of Democratic state Sen. Pat Steadman and Republican state Rep. Jon Becker, we have an opportunity in House Bill 1315 to expand the mission of the Governor's Energy Office and recast this agency as the Colorado Energy Office.

The new Colorado Energy Office will promote all types of energy that protect the environment, lower consumer costs and increase energy security. The Steadman-Becker bill will extend funding for the Colorado Energy Office for five years and focus the office on long-term energy projects that have broad job creation potential.

In short, this legislation creates an "all-of-the-above" Colorado Energy Office that builds upon our state's national brand as a leader in energy conservation and renewable clean energy. It will also enhance Colorado's reputation for energy innovation.

The Steadman-Becker bill focuses the state's energy work on promoting innovative energy technology, no matter if the fuel source is wind, gas or coal, as long as that energy can benefit the environment and save consumers money.

Tens of thousands of Coloradans are currently employed in the energy sector, and with sustained focus on promoting energy resources and technologies, the Colorado Energy Office can help grow this diverse industry.

We need this bipartisan legislation to pass the General Assembly this year. The Steadman-Becker bill will help Colorado's economy create jobs and buttress Colorado as a national leader in developing an energy strategy that is both environmentally sensitive and economically sound.

The US has increased oil production 15% since 2009, from private sources on private lands, not because the feds opening up drilling leases and permits. The high price makes more types and grades of oil economic to produce, like shale oil from the Bakken formation. http://oilshalegas.com/bakkenshale.html

Meanwhile, the price of oil did not go down. Why not?

Oil is transportable. The market for oil is global. The US produces 11% of the world's oil. A 15% increase is only a 1.5% global increase while all other factors were not held constant.

Natural gas is less transportable. The market therefore is local. With natural gas, the dramatic increases in production resulted in noticeable decrease in price. The law of supply and demand in alive and well.

Do the laws of supply and demand apply to oil? Yes. But a 1% increase is like having a dollar and gaining a penny while your demands are changing. The question is not if increased production will lower prices, but how much increased production will it take to make a positive economic impact. To start with, we should be striving to double our production and then increase it some more until the US produces as much it consumes, and more. Then the US would still be only having a neutral effect on world oil prices. Meanwhile we could be shifting a good portion of our transportation usage over to cheaper and cleaner burning natural gas, further alleviating the demand for oil.

As they said 20 years ago opposing ANWR and the like, that would take 10 years. Yes it would have. The results would come faster today. But world market price is set in futures markets that are based on risks, trends and expectations. As the effort to double production becomes apparent, the impact on the oil futures market would come much sooner.

When it comes to gasoline, are Americans transforming from the world's chief gluttons to models of moderation? According to Philip Verleger, the energy economist, that is more or less the country's direction, with surprising consequences.

The Shale Gas Secret Why has drilling boomed in America, while it struggles in Europe?

'Whoever owns the soil, it's theirs up to Heaven and down to Hell." So goes the ancient common-law principle. Today, however, almost no major country recognizes full subsurface private property rights, except for the United States.

We mention this because that blessing of American jurisprudence helps explain one of the few bright patches in the Obama economy—the booming production of shale gas and, increasingly, oil. The U.S. ranked 159th in GDP growth last year. But in natural gas production, it's now No. 1.

How did that happen? Partly it's the luck of geology, though plenty of other countries have abundant shale resources. Partly, too, it's American technological leadership in developing hydraulic fracturing (fracking) and horizontal drilling. But those techniques are now widely understood the world over.

What has given the U.S. its edge is that the early development risks were largely borne by small-time entrepreneurs, drilling a lot of dry holes on private land. These "wildcat" developers were gradually able to buy up oil, gas and mineral leases from private owners while gathering enough geological data to bring in commercial producers.

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A natural gas site in Fort Worth, Texas.Take Texas's Barnett Shale, a particularly tight rock formation that had been eluding speculators for years. Houston-based Mitchell Energy & Development Corp. spent the 1980s refining horizontal drilling techniques, and by 1996 it was producing Barnett shale gas.

Jason Dvorin, a partner in the Dallas-based oil and gas leasing and exploration firm Dvorin LLC, recounts that when his father Sanford heard of Mitchell's success, he decided to go all-in, having also spent years chasing Barnett shale. In 1997, father and son began buying individual leaseholds for mineral, oil and gas rights at $25-$50 an acre. By the time they sold their productive leases at the end of 2007, Mr. Dvorin recalls, they were going for as much as $30,000 per acre. "Even today, in a depressed market, operators are still paying $1,500 an acre."

Meantime, some of the property owners who leased their mineral rights to companies like Dvorin have received royalty checks, typically worth at least 12.5% of production value. That's encouraged further leasing and exploration, generated popular momentum for fracking, and brought development to previously depressed regions such as western Pennsylvania and the Bakken area of North Dakota.

Now compare this to Europe, which sits on an estimated 639 trillion cubic feet of shale gas yet remains heavily dependent on Russian imports. The governments of France and Bulgaria have banned fracking on dubious safety grounds, with nary any pushback from their publics. That might not be the case if French farmers, for example, were able to profit from the riches underneath their terroir.

Countries such as Poland and Great Britain are willing to develop their shale potential. Yet in both places the absence of private mineral rights has delayed exploration and production.

In 2008, U.K.-based Cuadrilla Resources obtained a license to explore underneath some 297,000 acres of Lancashire countryside. It has since been completing its tests, negotiating surface-use agreements with landowners, and wading through the planning, health and safety approvals it needs before it can finally apply for a license to produce and commercialize the gas. Those final negotiations will take at least a year, once they commence in mid-2013.

As for Poland, Exxon Mobil recently abandoned a large regional concession there when its two test wells didn't meet expectations. For a company of Exxon's size, it may not be profitable to spend time drilling a lot of dry wells in Poland when it can focus on more established and "de-risked" prospects elsewhere. But smaller developers might be willing to take risks and explore the geology a little more thoroughly—if only they could gain private title to the resources.

In time, perhaps even the French will recognize their lost opportunity and lift their ban on fracking. But the deeper lesson is that this is a revolution that came about not through government planning or foresight, but through a combination of individual risk-taking and private property. Europeans could benefit by doing more to broaden the latitude for both.

"Horizontal drilling and fracking have made oil shale and tar sands rich sources of oil and natural gas, so much so that the United States may prove to possess the largest store of fossil fuel reserves in the world -- in theory, with enough gas, oil and coal soon never to need any imported Middle Eastern energy again. 'Peak oil' is suddenly an anachronism. Widespread American use of cheap natural gas will do more to clean the planet than thousands of Solyndras. If the United States utilizes its resources, then its present pathologies -- massive budget and trade deficits, mounting debt, strategic vulnerability -- will start to subside. These new breakthroughs in petroleum engineering are largely American phenomena, reminding us that there is still something exceptional in the American experience that periodically offers the world cutting-edge technologies and protocols. ... Who would have thought that a few fracking innovators in Texas would change the world's carbon footprint far more than did Nobel laureate Al Gore -- while offering a way for the U.S. to be energy-independent." --historian Victor Davis Hanson

Crafty's previous post: "Who would have thought that a few fracking innovators in Texas would change the world's carbon footprint far more than did Nobel laureate Al Gore -- while offering a way for the U.S. to be energy-independent." --historian Victor Davis Hanson

Washington Post 7/21/2012:

In the past few years, the shale gas boom has upended the U.S. energy landscape. With large and small companies drilling wells around the country, cheap natural gas is now displacing coal as the nation’s top source of electricity. That, in turn, has helped contribute to a drop in U.S. carbon-dioxide output: According to the International Energy Agency, the United States has cut its emissions 7.7 percent since 2006, more than any other country or region in the world.

Climate Change This Week: The Other Polar Ice CapThe Arctic Ocean will be entirely ice-free within four years -- or so predicts Cambridge Professor and "ice expert" Peter Wadhams. He says that this summer's new record-low sea ice extent of under 3.5 million square kilometers is but a taste of the "global disaster" coming. "I have been predicting [a complete collapse] for many years," warns Wadhams. "The main cause is simply global warming." Within a few years, he says, a complete breakdown of sea ice will lead to an ice-free Arctic. But freeze -- there are three major points that need to be made clear.First, major ice melt in the Northern Hemisphere was entirely expected and can be directly attributed to natural causes. WeatherBell Meteorologist Joe Bastardi provides the many reasons for the unfavorable environment, which include different phases of the Pacific Decadol and Atlantic Multidecadol Oscillations: "The earth's temperature rose in response to the warming Pacific, which started the northern ice cap melting. The Atlantic is in its warm stage now, so the ice cap is being attacked from the ocean also. Once the Atlantic comes out of its warm phase in 10 to 15 years, the ice cap will rebound." In other words, it's called "nature."Second, open waters in the Arctic are well documented. Bastardi provides photographic evidence of submarines surfacing at the North Pole. The first picture shows a single submarine in August 1959 and the other depicts three subs in the open waters in May 1987. So much for "unprecedented."And third, no one seems to be looking at what's happening in Antarctica. As Steven Goddard of Real Science points out, "Antarctica currently has the most sea ice ever recorded for the date, which is 17,000 Manhattans larger than the greatest amount of sea ice ever recorded in the Arctic." He quips, "Most geographers actually consider the southern hemisphere to be part of the globe."All sarcasm aside, what's happening in the Southern Hemisphere is equally impressive, if not more so, than what's happening in the North when taking into account the continent's mass. As Bastardi summarizes, "A nation built on the freedoms to confront reality will not survive if shackled by policies that chase utopian ghosts."

"Most geographers actually consider the southern hemisphere to be part of the globe."

Very funny line.

I watched the IMAX movie to the Arctic, a beautiful movie about Arctic life, Polar bears in particular. It is narrated by Merly Streep with nonstop liberal extremist messages and no mention that the population of Polar bears is increasing or that the Antarctic is gaining ice. While they fly endlessly to produce propaganda for us, we should stay home and get used to doing without energy was the message

Electricity and gas is a top need and priority after interruption in the wake of the storm. http://www.bloomberg.com/news/2012-11-01/obama-tours-n-j-storm-damage-as-restoring-power-takes-priority.html

Who knew?

Energy is always a top priority, except for when we take it for granted.

Meanwhile Al Gore is saying energy consumption caused the storm:http://www.huffingtonpost.com/al-gore/statement-on-hurricane-sa_b_2045406.htmlScientists tell us that by continually dumping 90 million tons of global warming pollution into the atmosphere every single day, we are altering the environment in which all storms develop. As the oceans and atmosphere continue to warm, storms are becoming more energetic and powerful. Hurricane Sandy, and the Nashville flood, were reminders of just that.

Electricity and gas is a top need and priority after interruption in the wake of the storm. http://www.bloomberg.com/news/2012-11-01/obama-tours-n-j-storm-damage-as-restoring-power-takes-priority.html

Who knew?

Energy is always a top priority, except for when we take it for granted.

Meanwhile Al Gore is saying energy consumption caused the storm:http://www.huffingtonpost.com/al-gore/statement-on-hurricane-sa_b_2045406.htmlScientists tell us that by continually dumping 90 million tons of global warming pollution into the atmosphere every single day, we are altering the environment in which all storms develop. As the oceans and atmosphere continue to warm, storms are becoming more energetic and powerful. Hurricane Sandy, and the Nashville flood, were reminders of just that.

Merrill on “Fear of Fracking”from The Volokh Conspiracy by Jonathan H. Adler(Jonathan H. Adler)This morning, Columbia’s Thomas Merrill delivered the keynote address at the Case Western Reserve Law Review symposium on “The Law and Policy of Hydraulic Fracturing: Addressing the Issues of the Natural Gas Boom.” His talk, “Fear of Fracking,” sought to addressed four important questions about fracking: 1) Why did fracking technology emerge in the United States rather than somewhere else? 2) Does fracking present any novel environmental risks? 3) Insofar as there are novel risks from fracking, how could they be best addressed? 4) What should a citizen concerned about climate change think about fracking?

These are important questions about an important topic. As Merrill noted, fracking has rapidly emerged as intensely polarizing environmental issue, celebrated by some as an economic and ecological savior and decried by others as a threat to landowners, local communities, and the environment. The Wall Street Journal believes fracking heralds the rise of “Saudi America,” while some environmental groups fear fracking will further feed America’s addiction to carbon-based fuels.

Whatever its ultimate ecological impact, the combination of hydraulic fracturing and horizontal drilling promises to dramatically increase domestic oil and gas reserves, drive down energy prices and fundamentally transform the energy sector. North Dakota now produces more oil than any state but Texas and the oil and gas boom in this state is enriching landowners tremendously. Every president since President Nixon has called for energy independence. Fracking’s rise could make this possible within the next few decades. Beyond that, fracking and the proliferation of cheap gas, Merrill suggested, likely means the end of the nuclear power industry in the United States and has thrown the coal industry into a tailspin. Cheap gas is a bigger threat to coal than any alleged “war on coal” waged by the Environmental Protection Agency. It also threatens the future of alternative energy technologies dependent upon government subsidies for their economic viability.

[My write-up of the rest of Professor Merrill’s remarks is continued below the fold.]

Why did fracking arise in the United States? Contrary to some analysts, Professor Merrill does not believe it is attributable to federally funded research and development. What little funding for drilling technologies the federal government has provided has been fairly tangential. This does not mean federal policy has been irrelevant, however. The federal government has provided special tax credits for the drilling of unconventional natural gas which almost certainly facilitated the early development of the technology as early frackers developed and improved fracking techniques.

Professor Merrill also doubts industry structure has much to do with fracking’s rise either. However much major oil companies like to tout their commitment to innovation, the majors played a minor role in developing this technology. It was largely developed by smaller players in the industry.

A more likely factor is the way U.S. law treats subsurface rights. The U.S. is something of an outlier in that subsurface minerals are the property of the landowner, and not the government. This results in decentralized ownership and control over subsurface rights facilitates experimentation and innovation in figuring out how to exploit and manage subsurface resources.

Further decentralization, and experimentation, results from the federalist regulatory structure. Different states have different regulatory approaches than others, creating opportunities for further innovation and the opportunity for jurisdictions to learn from one another. The existence of a few jurisdictions that will allow a new technology to be tried provides a laboratory from which others may learn, whereas under a more centralized regulatory structure such innovation is unlikely to get off the ground.

The existence of a relatively open infrastructure network – a pipeline system that is subject to common-carrier rules – also plays a role in facilitating entry into the market. These factors have a common theme: decentralization. Taken together, Merrill suggests, they are the most likely source of fracking’s rise in the Unites

Now that fracking is here, does fracking present any novel environmental risks? Insofar as fracking presents the same risks as any sudden surge of production, the traditional regulatory framework would seem up to the task, but is this the case? The biggest environmental risk cited by fracking’s critics is the potential for groundwater contamination by fracking fluid. This may be different in kind from the risks already addressed by existing regulatory programs. Other concerns range from stresses on local infrastructure to increased pollution accompanying development to earthquakes. Fracking has a voracious appetite for water, but this would seem to be manageable, particularly in the eastern United States. Earthquakes, on the other hand, would seem to be a novel concern definitely worth more serious attention, even if it is not unique to fracking.

To Professor Merrill, the potential threat of groundwater contamination is the most serious, and potentially most distinct, environmental threat posed by an upsurge in fracking. While there is little empirical evidence confirming that such contamination has occurred thus far, and energy experts often downplay such risks, concerns about groundwater are understandable. The uncontrolled nature of the subsurface injection in fracking is a source of legitimate apprehension, particularly since many of the potential effects are not fully understood. This counsels the development of some regulatory structure to address these risks.

Accepting that the risk to groundwater posed by fracking is relatively novel, how should it be addressed? In many cases, ex ante regulation of potentially polluting conduct is advisable. In this case, however, the nature and likelihood of the risks in question are not sufficiently known to make such a regulatory approach effective. Over time, consensus views about best practices will likely develop, but they have not yet because not enough is known. Adoption of a precautionary regulatory strategy would likely stop fracking in its tracks, as the problem is lack of knowledge about the technology that will only come from experience.

Under the current circumstances, Professor Merrill thinks the best way to regulate and control the potential groundwater risks from fracking is through an ex post liability system. Professor Merrill would encourage the adoption of a strict liability regime combined with administrative measures to facilitate the identification of and compensation for harms, including mandated baseline testing, bond posting, and the like. Legislative adoption of such a regime is unlikely, Merrill notes, as legislatures are unlikely to enact such a regime absent greater evidence that fracking is, in fact, a meaningful threat, i.e. until real damage is done. Common law tort liability might do, however, particularly if courts impose strict liability, following the lead of Rylands v. Fletcher, and adopt a presumption of causation if producers don’t take adequate ex ante precautions, such as testing water prior to initiating development.

What then about climate change? Does fracking help or hurt efforts to stabilize atmospheric concentrations of greenhouse gases? Over the past five years, GHG emissions in Asia (where coal is the dominant power source) have continued to rise. In Europe, GHG emissions have remained rather stable, despite substantial subsidies and inducement for the use of renewable fuels. In the U.S., by contrast, GHG emissions have fallen. Some of this is due to the economic slump and improvements in fuel efficiency. But some is also due to the dramatic increase in natural gas usage. Declining gas prices, largely due to fracking, have helped displace the use of coal. This is a positive development, but unless similar trends can be replicated elsewhere it will not matter. Unless gas can displace coal overseas as well, the fracking boom will not do much to reduce global emissions, particularly if lower gas prices make it more difficult for renewables to compete.

On the whole, however, Merrill thinks those concerned about climate change should support fracking. While it undermines reliance on nuclear and renewables, cheap gas is a bigger threat to coal, and the displacement of coal is more important to get GHG emissions under control. Further if the development of fracking in the U.S. can be exported to other nations, it could help stem GHG emission increases in other nations with large coal reserves (e.g. China). Ultimately, however, Merrill believes GHG control requires substantial technological innovation, and suggests that a fracking-driven drop in energy prices might facilitate the adoption of policies that could encourage needed innovation, such as the adoption of a carbon tax. Whatever political obstacles there may be to the adoption of such a tax, lower energy prices make such measures more likely, even if only on the margin.

U.S. energy production has been booming in recent years. The International Energy Agency made a jaw-dropping forecast two weeks ago that the U.S. would pass Saudi Arabia as the world's biggest oil producer by the end of this decade -- and would achieve near energy independence by the 2030s.

That energy boom, asserts Ferguson, will create jobs in the United States. Lots of jobs.

U.S. energy independence must be about to happen. The International Energy Agency just devoted its World Energy Outlook 2012 to telling us so. America will become the largest producer of oil and other liquid fuels on Earth by 2020; it will be entirely self-sufficient by 2030; and a net exporter by 2035. Boom. Epic stuff.

It would be churlish to deny that U.S. energy growth will provide major economic gains to America — of course it will. Here’s a few hundred pages explaining exactly what they are. But this isn’t going to be a free lunch for America.

We’ll leave aside the fact that IEA forecasts have a strong track record of being universally wrong, or that a month ago they were pinning all their supply side hopes on Iraq coming good to ‘balance’ international oil markets. Minor stuff; but having just flown over the Bosphorus en route to Ankara via Istanbul, believe me, the world looks very different depending on where you’re sat. Here are 10 reasons for the U.S. to be cautious on energy supply growth, irrespective of however the IEA forecasts play out:

1) America Will Never Be The New Saudi Swing

America is never going to be in a position to produce enough liquids to perform the role of swing producer in the oil world. It might notionally overtake Saudi production by 2017, but that hardly leaves it much export margin to play with. U.S. pricing ‘power’ will purely become a function of how much collateral damage it does to other producer states, not dictating how much consumers have to pay at the pumps.

2) Global Pricing Pressures Will Always Influence US Pumps

By the same token, America can never truly escape international pricing pressures affecting broader supply-demand fundamentals. If anything, once the Obama administration gets to grips with significant infrastructure bottlenecks that have led to an inefficient domestic market, WTI benchmarks will increasingly realign with international prices. ‘What happens in the Gulf of Aden still affects what happens in the Gulf of Mexico’.

3) Transitional Friction Will Be Profound

The fact that America has seen such rapacious supply side activity averaging over 500,000b/d in the past four years was good news for President Obama’s re-election, but it’s deeply concerning for traditional producer states. America has played fast and loose with international oil market stability of late, first in Libya, and then in Iran, purely on the back of new oil gains. Assuming U.S. supply growth forces oil under three ($100/b) figures, OPEC states will be in deep political trouble. Supply side outages across producer states will be the result when instability hits. American supply growth will not be in a credible position to settle the markets; consumers will pay a heavy transitional price. The transitional limits of ‘energy independence’ will be clear for all to see, not just in traditional producer states that needed high prices to maintain stability, but a range of new players that all required firm prices to bring difficult fields to the wellhead.

4) U.S. Policy Suffers Structural Paradox

Needless to say, this makes a total mockery of ongoing US external support for oil supplies coming from the Middle East. It makes zero sense for Washington to be paying billions in tax payers’ money maintaining the 5th Fleet in Bahrain only to watch OPEC states internally implode from the prospect of lower oil prices driven by American supply growth. It also points to a very awkward conundrum for State Department interests in the Gulf – this is ultimately about U.S. global power, not just oil.

5) All Points On The Compass Look East

The more damaging geopolitical problem is that anywhere ‘East of Nigeria’ will be looking to China and India for security of demand and geopolitical cover. China will stake its claim to regional dominance far more aggressively and expand its influence into the Gulf. The Asian ‘pivot’ will lose its bearings, and the dollar put on borrowed time if China no longer sees fit to keep bankrolling the Fed for its own security ends. What’s worse, Washington will still be intrinsically connected to global oil prices but have zero influence in the Gulf, Caspian, Russia or East Africa to influence material outcomes. That’s on anything ranging from nuclear proliferation to delicate succession issues. China will be calling the shots, able to split the world in two by laying claim to the Middle East, the Caspian, Australasia, Russia and East Africa as vital interests.

6) America Might Lose Friends Closer To Home As Well

Well, when we say ‘split the world in two’, it’s not going to be quite that neat for the Americas. There’s no way Canada, Mexico, Colombia, Ecuador, Venezuela, Brazil or Argentina will be happy relying on a single source of supply and a single source of demand from Washington. Far from selling oil into a saturated U.S .market, they’ll redouble their efforts to export energy to Asia, a hedge that could significantly reduce Washington’s long term influence in ‘Monroe’s playground’. Brazil could end up joining OPEC; Canada will be very tetchy about Arctic developments. As for Europe, with the trans-Atlantic relationship dead, they’ll go looking for new friends to help with energy supplies. The most likely of which is China to align consumer interests on the Eurasian land mass. The Western Hemisphere shrinks; for China, the sun never sets.

7) America Will Struggle To Keep Pace

Having lost most its friends (or ‘frenemies’) as some like to put it, America has a bigger problem. Can it really follow through towards 2050 as the biggest energy player in the world? The geological data is unsure. America’s 482tcf of gas and 25.2bn barrels of oil will start to look very small, and particularly if other producers follow America down an unconventional path. That’s by no means unlikely when you consider U.S. benchmark pressures could force traditional producers to give up trying to control prices, and go for a volumes strategy instead. We’re already on the verge of that happening in the natural gas world, there’s no reason why it wouldn’t be any different for oil. 110mb/d by 2020? Probably doable in a risk free, care free world; call it ‘OPEC’s unconventional bounce’. In a race to the bottom of the barrel, the Middle East is always going to trump the U.S. mid-West.

8 ) But Fear Not, America Can End Up A Chinese Lake

If that happens, fear not, the one country that will keep investing in U.S. liquids production is China. It’s in direct Chinese interests to make sure America fulfils its oil potential to help forge a structurally cheap and abundant energy world, not to mention hedging Beijing’s supply side portfolio. China has pumped $17bn into America since 2010, $10bn into Brazil, $16bn into Venezuela, and $18bn into Canada. And that’s before you consider the prospective $15.1bn Nexen mega deal. Many think it’s farfetched, but look closely at the U.S. natural gas scene. China’s not only happy ploughing money into economically disastrous dry shale plays, it’s providing supply side contracts and finance for U.S. LNG export growth. Ask Cheniere down at Sabine Pass. Cheap U.S. gas on international markets is exactly what China wants to secure preferential contracts across the board, and it’s precisely what they’re now eyeing for oil.

9) Blunt Conclusion: China Gains Most From Cheap U.S. Oil

The core reason is China knows it gains most from a world of cheap and abundant energy. America ‘wins’ a ten to fifteen year tactical victory from enhanced liquids output, but in doing so, loses the long term battle for superpower status against China. Beijing gets to drive through its industrial revolution on the cheap, all while the economic gains for America remain marginal. Beijing leverages U.S. production gains to break the pricing game and force producers into a volumes future. Despite 80-85% import dependency, China picks up the pieces in a perennial buyer’s market. America goes home, broke.

By way of footnote, any hope of progressing climate mitigation through a US-China deal has now totally gone. This will purely be a world of climate adaptation to reduce the worst impacts of climate change. 2C stabilisation no chance; 450 parts per million by 2017, probably so. Where the relative costs fall will be down to mother nature on that one.

… Silver Linings?

But fear not, there’s a silver lining here and it’s the reasonable chance that the IEA is totally wrong. The report spends very little time looking at shale oil decline rates, some of which have dropped to around 20-40% of original production. Nor does it look at the quality of the geology that’s left in America once the juiciest plays are gone. As for political risk, that doesn’t appear to exist in America, (no doubt BP could add a nice chapter for the IEA on that score). Then you get onto break even prices. The IEA genuinely seems to think we’ll only be consuming 99.7mb/d by 2035, up from around 90m/b today. If that’s so, we’ll be swimming in the stuff. Production would need to be so cheap in the U.S. it’s basically free. Rex Tillerson can forget losing his shirt from cheap shale gas; he’ll be down to his y-fronts once China has stripped America bare through relentless liquid investments.

Get the picture; energy gains are great, but everyone should be very careful what they wish for, most of all the IEA, whose political capital frankly doesn’t extent that far these days beyond Washington and Paris. And certainly not in Ankara, if the locals are much to go by…

I confess that I did not follow quite a bit of that. Indeed, I found some of it rather incoherent.

For example:

"Needless to say, this makes a total mockery of ongoing US external support for oil supplies coming from the Middle East. It makes zero sense for Washington to be paying billions in tax payers’ money maintaining the 5th Fleet in Bahrain only to watch OPEC states internally implode from the prospect of lower oil prices driven by American supply growth. It also points to a very awkward conundrum for State Department interests in the Gulf – this is ultimately about U.S. global power, not just oil."

So the problem is that we don't need to care about the middle east as much as we used to?

I could go on, but frankly I find the piece not worthy of my time , , ,

The point of the author, in that section means that our few remaining "allies" in the ME would collapse if oil drops too much. Thus, if we managed to produce enough to meaningfully reduce the global oil prices, we'd have a pyrric victory as the drop would not last when the jihadis swallowed up those ME nations that imploded from lowered oil revenues. Back to high prices and even less of a strategic position globally.

Not persuaded. The reason that so many people care about what happens in the mid-east is that up until now it has supplied a goodly % of the world's energy. If energy supplies elsewhere (including the US) expand dramatically, then the mid-east, apart from the nuclear issues, matters dramatically less. Seems like a good thing to me!

The points in the article are interesting to me, important considerations for awareness going forward. They do not override the competing case, that to not produce our energy means unaffordable energy contributing to other problems like uncompetitive manufacturing, imbalance of trade in the trillions with resulting effects on our currency, increased need for redistribution and big government because of widespread energy unaffordability. Foremost, to not produce our own energy means to have the fascist forces of our government override the freedoms of our enterprise. Not to mention making places like the Straits of Hormuz and people like the Mullahs and Chavezes of the world crucial to our economic survival. Not an optimal situation, as the President said about 4 dead Americans in oil producing Libya.

My understanding is that fracking and shale oil and oils sands development came about because of artificially high prices on oil. Saudi oil (and Alaskan oil, Venezuelan) is still cheaper to produce. Those sources will always have a cost and price advantage even if they run the rest of their economy miserably.

Energy independence is not the term for what we need; it's more like energy balance. We export a lot of energy now but import far more. The goal IMO is just to get production totals more in line with consumption requirements. When that becomes true we will have a neutral effect on world prices as both a producer and a consumer, and an importer and exporter of energy. Qatar, Bahrain, Kuwait, Emirates, etc. do not have to go broke as the oil price stabilize under $100 nor does their product become obsolete. (Nor do we have to stop being their ally.) US production will not push prices to zero nor to a level below their cost basis.

With increased US production these 'allies' in the Middle East will still face the same cultural/economic challenge they always faced, to build out the rest of their economy producing something of value more than just oil. Same is true for Mexico, Canada, Houston and the people of Williston ND.

Jenkins: Good Will Fracking Hollywood wimps out and makes a formula film.By HOLMAN W. JENKINS, JR.Like this columnist ..

After a decade of war and half-century of costly military involvement in the Middle East, the United States stands on the brink of "energy independence." Then a shadowy Canadian billionaire coupled with Mideast oil interests sponsor a Hollywood propaganda movie aimed at luring Americans into throwing away the instrument of their deliverance: shale energy.

They co-opt a name-brand Hollywood movie star to be the useful idiot of their nefarious plot. The movie is released a few days after Christmas, just in time for Oscar nominations in a diabolical scheme to influence a national debate over fracking.

In other words, a typically stupid Hollywood thriller plot, except for a minor deviation: The poor shmuck actor is Matt Damon and he's making a real movie, albeit with its own typically stupid Hollywood plot, one that doubles down on the conventional "evil oil company" stereotype.

If you somehow missed the twists and turns, Mr. Damon, who played a genius in "Good Will Hunting" and a master spy in the "Bourne" movies, has pled ignorance of the fact that financing for his movie came partly from Abu Dhabi, which, as the Heritage Foundation puts it, has a "direct financial interest" in fanning opposition to domestic energy development.

So will Americans flood out of theaters early next year demanding to be relieved of the shale bounty? Not likely. And before getting too conspiratorial, Abu Dhabi's last movie was a Nick Cage "Ghost Rider" stinker, while Jeffrey Skoll, the Canadian eBay EBAY +1.59%billionaire and co-financier who makes no secret of his progressive longings, also backed "Lincoln" and "The Best Exotic Marigold Hotel."

Perhaps Mr. Damon at least made a good movie. Alas, early word is not promising. Variety, not constitutionally inclined to criticism, called it "dramatically underpowered" and said its plot "cheapens the seriousness of the issues at stake."

If a movie were to tell the truth about fracking, it would begin with the core conflict, which isn't between environmentalists and earth-raping oil companies. Fracking was a bone of contention first of all between landowners who wanted to cash in on energy royalties and neighbors who didn't want the neighborhood invaded by heavy industry.

Yard signs abounded. Longtime acquaintances bellowed at each other in town-hall meetings. Groups professionally hostile to energy development only arrived later, having had the wit to notice that the more affluent, country-home owning opponents of local fracking were the environmental groups' natural constituents.

Thus was born a political war, complete with standard "Big Oil" versus "Greenies" symbology, out of what had been a neighbor versus neighbor dispute. Yet, truth be told, neighbor versus neighbor is still the only story that's interesting. Fracking, in Pennsylvania and upstate New York, came into a world long abandoned by economic dynamism. Fracking threatened to transform a bucolic quietude that some liked just fine and others couldn't wait to earn enough money to escape.

This is the story of economic development in every time and place, which is never without its ambivalences, transforming landscapes, inflating property values, altering social dynamics. To treat these themes realistically in a movie is not a sin. Energy companies in the Marcellus Shale were never going to be especially sensitive to the dilemmas they created for residents with the big money they were handing out. Residents were always going to be what they were: conflicted, greedy, frightened, resentful.

Filmmakers may be ideological numbskulls, but their real problem is often that they are cowards, too afraid of their friends to make an interesting movie. The painter Degas once said, "A picture must be painted with the same feeling as that with which a criminal commits his crime." If Degas meant anything by this, he likely meant that caring too much who approves or disapproves is the death of art.

If a screenplay leaked by the pro-fracking activist Phelim McAleer is accurate, art dies in Mr. Damon's movie in an ironic way. In the real world, water-pollution fears put forward by fracking's opponents have proved largely hokum. The movie deals with this inconvenient fact by turning its eco-activist protagonist into an agent provocateur of the oil company, whose job is to discredit the environmental opposition from within.

Which is very much like what ideological critics are saying about Mr. Damon's "Promised Land"—that the film's backers are an unholy alliance of green money and oil sheiks out to abort America's fracking windfall.

Bad art is bad art. It seeks to compensate for its own lack of confidence by inflating the stakes. What makes fracking fascinating is precisely the quotidian fact that, in every way, we are inclined to celebrate economic progress except when it disturbs our own familiar scenery and routines. Fracking, for this reason, is proving to be the most carefully observed, policed and debated industrial revolution in the history of industrial revolutions. And a movie that had the courage to be interesting about all this might actually be worth watching.

That world-saving breakthrough was reported by the Washington Post - posted in a blog!

Why is this happening - the reduced emissions, not the poor media coverage. Increased production and use of natural gas, for one thing. We don't need more coal if we allow production and consumption of natural gas which burns far cleaner:

I'll stick this under Energy but really it is liberal fascism running wild. Combine this with healthcare and they have pretty much every aspect of your life under control.

This Senator, incoming chairman of the Senate Committee on Energy and Natural Resources, isn't just going to regulate the safety of the energy business, he is going to give deep thought to whether you should be using the energy at all.

And if you produce natural gas legally and safely, and even though we already have a pipeline of it to almost every home, he is going to give deep thought to the question of who you should be able to sell it to.

My first thought is that the new oil increases from private lands are being offset by the lost production on public lands. Our net increase in production is not enough to make a dent in the global market or price.

My second thought is that oil/gas up is an indicator of economic health in the global economy. This one seems unlikely looking at the US and Europe, but there is growth in some developing countries.

Last is to recognize the distinction between new oil produced and refinery output of gasoline. Asking this question through google brings up a string of stories from about a year ago warning of refinery closings, lost capacity and higher prices coming. Who knew?

I thought the Cheney plan called for the permitting of new refineries. Where are they?

What screws up the business of the refineries? 50 sets of rules for winter and summer gasoline blends for one (hundred) thing(s). What are the Feds doing with all their new powers to fix this? Why isn't CNG more available if we are awash in natural gas and if they want us to emit less carbon?

What new refineries has Obama supported?

Another problem for refineries is that the new oil is heavy, of tar sands origin. Where is the sweet, light crude? We are leaving it in the ground up in ANWR. Who opposes drilling for the sweet light crude? The people who wanted these prices high.

In spite of the brave capitalists in North Dakota, Mission Accomplished.

Frankly, ANWR drilling makes me nervous. Look at what a clusterfcuk was created by BP in the placid, warm waters of the Gulf of Mexico. Now imagine that same mess in the exceedingly hostile environment of the Arctic Sea.

Excellent observation. Middle East oil tends to follow gold, not the dollar. After the whole 1971 monetary crisis and the oil embargo of the 1970s it turned out that the price of oil, measured in gold, had remained largely unchanged.

We weren't seeing the loss of value so much yet but they certainly have noticed the diluting or our shares.

Frankly, ANWR drilling makes me nervous. Look at what a clusterfcuk was created by BP in the placid, warm waters of the Gulf of Mexico. Now imagine that same mess in the exceedingly hostile environment of the Arctic Sea.

Respectfully disagree. ANWR I think is the low hanging fruit of oil. The Alaskans favor it. The caribou want it. The drilling is the easiest. Transport by pipeline I think is the safest. Refining is far easier. The deep water operation was confounded by - deep water. They went deep because the cheaper, easier, safer sources closer to shore were blocked. MHO.

The Arctic Sea is a REALLY hostile environment, FAR more so than the Gulf of Mexico. Look at how long it took to straighten out the BP mess. Imagine trying to solve a similar problem with 20-30 foot seas on the surface in temperatures of 40 below zero with winds of 40+MPH. NOT my idea of low hanging fruit!

The Arctic Sea is a REALLY hostile environment, FAR more so than the Gulf of Mexico. Look at how long it took to straighten out the BP mess. Imagine trying to solve a similar problem with 20-30 foot seas on the surface in temperatures of 40 below zero with winds of 40+MPH. NOT my idea of low hanging fruit!

Agreed re the relation between gold and oil.

Crafty, you are of the belief that the oil production in ANWR would be offshore? My understanding is that the drilling platforms would be located safely on land. http://blog.heritage.org/2008/06/29/the-truth-about-anwr/

The opposition materials I read were based (intentionally) on old drilling technologies, not what can or would be built today. No one is talking about drilling 5000 feet beneath the sea in the Arctic. Temperatures of 40 below zero, 40mpg winds? You guys think that's cold? Sea water freezes at 28 degrees, 68 degrees warmer than that. It's those pesky in-between seasons where the cold breezes hits open water. Not a big factor if the platforms proposed in ANWR are on land. The cold frozen tundra may actually help contain a potential spill. The deep water site was built in the ocean in a hurricane zone, and that wasn't what went wrong. The explosion in the gulf was not with light, sweet crude. The asphalt-like qualities of the heavier oil contributed to the risk of explosion and difficulty of cleanup in the gulf.

If not ANWR, the easiest to refine oil sitting under US voter controlled land, which US oil sources are the 'low hanging fruit'?

More surprising is the impression that concerns out of LA or DC should override the opinion of the locals that the operation can be constructed and operated safely, which is exactly what happened. States' rights don't apply in this case because ........... .

The damage in the gulf (also Valdez) was horrendous, perhaps unprecedented at the time. What is the lasting effect of those? Is the environmental damage less when the Chinese, Russians, Brazilians or Mexicans do our drilling? When we leave the money (our energy demand) on the table, then what happens? Someone else does it, and not with better environmental protections.

Is the expected environmental damage more destructive than the current policy of leaving American oil in the ground and shipping dollars to enemies for our oil. Example: With consumption demand quite strong and stable, the supply choice, in part, is between supporting Chavez' support for Iran's planned destruction of Israel versus building well constructed facilities in the US. Spills avoided in the Arctic by not producing oil there means other risks elsewhere are increased. Right?

Thanks Crafty. These other offshore locations involve different risks. Hopefully we have learned lessons from the gulf deepwater disaster that can make these operations even safer. The major objection to near shore drilling is that our oil consuming electorate does not want to look out and see oil produced. Like liberal Cape residents and visual windfarm 'pollution'.

The costs, lawsuits and bad publicity against BP, and Exxon previously, are quite a strong deterrence to having environmental screwups. Regulators unfortunately are always behind the curve and not always working with the right interests in mind.

The main arguments against ANWR were that oil is bad for us and that it would have taken 10 years to benefit from the vast new production, 16 years ago. The new surge in American oil would have on line to help us at about the time we chose economic collapse instead.

If government has a role in this, it would seem to me that the main effort would be to ease the migration to domestic natural gas usage for individual transportation with 30% lower CO2 emission per unit of energy. Right now it is only practical for fleet owners in most locations. Instead the administration is planning its war against natural gas.

We have added some new and some expansions recently; it is only the 'complex' refinery type that hasn't been built since the 70s. http://www.eia.gov/tools/faqs/faq.cfm?id=29&t=6

We are down from 254 to 137 refineries in 30 years. Total capacity is slightly up, but apparently not enough to meet demand in a stalled 2013 economy.

The other problem is that state laws require different blends in different seasons in 50 states. Discontinuing an old product and ramping up a new product twice a year is disruptive to production and price. I'd like to see that problem fixed without a new federal law.

Gas was 1.82 when Obama took office. Even if total production is up slightly, it did not keep up with demand even in a stagnant economy.